Cross-facility management of production and transportation planning problem

This paper studies an integrated production and transportation planning problem in a two-stage supply chain. This supply chain consists of a number of facilities, each capable of producing the final product, and a number of retailers. We assume that retailers' demands are known deterministically and there are no production or transportation capacity constraints. We formulate the problem as a network flow problem with fixed charge costs. This is an NP-hard problem. To solve the problem we propose a primal–dual based heuristic that generates upper and lower bounds and runs in O(FRT²). The quality of the upper and lower bounds is tested on a large set of randomly generated problems. The maximum error reported for these problems is 4.36% and the maximum running time is 7.65 cpu seconds. Scope and purpose – Increased competition and increased customers' demands drive companies into being part of large and complex supply chains. Coordinating production, inventory and transportation decisions in complex supply chains is a challenging problem. This is the reason that for many years practitioners and academicians have looked at these problems separately. In this paper we propose a mathematical model that takes an integrated view of production and transportation decisions of a supply chain. We propose a solution procedure and show that it produces good quality solutions in a short amount of time.